A Comparison of Stock Market Mechanisms
I analyze a multi-asset market under two trading mechanisms. In the first (the unrestricted system), traders' demand for each asset depends on all equilibrium prices, and prices reflect the information contained in all order flows; in the second (the restricted system), traders' demand depends on the traded asset price, and prices reflect single order flow information. I show that informed traders' use of multidimensional private information depends on the number of prices they observe and on the price-formation process. I then give conditions rendering the restricted system more efficient than the unrestricted system.
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Volume (Year): 35 (2004)
Issue (Month): 4 (Winter)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Ananth N. Madhavan, .
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Rodney L. White Center for Financial Research Working Papers
16-90, Wharton School Rodney L. White Center for Financial Research.
- Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June.
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- Admati, Anat R, 1985. "A Noisy Rational Expectations Equilibrium for Multi-asset Securities Markets," Econometrica, Econometric Society, vol. 53(3), pages 629-57, May.
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